EU Savings Tax Directive
The EU Savings Tax Directive was introduced in July 2005. Since then it has been a requirement that banks in each EU member state report cross-border interest payments to the authorities of the destination state. In the case of Austria and Luxembourg, a withholding tax on cross-border interest payments has been imposed.
At the meeting of the European Council on the 20/21 March, agreement was reached to amend the Savings Tax Directive following the 2012 recommendations of the EU Commission. The Commission in its earlier report, considered that investors had put in place arrangements to circumvent the Directive through establishing trusts or foundations established outside of the EU into which interest was paid or for the interest to be paid I n other forms, including unit linked insurance products. To address the concern the Commission proposed that such payments should be included within the scope of the Directive.
The Commission’s proposal has been strongly resisted by Austria and Luxembourg, which consider that were the proposals to be adopted, their banking sector would be placed at a competitive disadvantage against those of non-EU member states, including Switzerland, Liechtenstein, Monaco, Andorra and San Marino (the ’Five States’).
In an effort to allay these concerns, the Commission has pursued independent negotiations with each of the Five States to secure their consent to an agreement in which they would apply similar regulations on their banking sector as those contained in the Directive. The Commission has been able to provide Austria and Luxembourg with sufficient assurances that the Five States will now implement corresponding requirements, although this has not yet been formally confirmed by the parties concerned.
With this hurdle overcome it is expected that the amended Directive will be adopted before the end of March, with Member States implementing the change in national legislation over the next two years.